Trends In Production And Distribution

( Originally Published 1939 )

Although actual costs of distribution-or of production-cannot be measured prior to 1929, indirect evidence shows that the spectacular gains in production efficiency have not been duplicated in the field of distribution. The ever-expanding role which distribution has been called upon to play in our economic system is strikingly demonstrated by the increased absorption of our working population in distributive trades and occupations.

At the time of the Census of 1870-less than seven decades ago -more than three-fourths of the nation's labor force was engaged in the production of physical goods, and less than a fourth in distributive and service activities. Agriculture alone in that year required the services of nearly 7,000,000 persons, or more than half of the nation's total of less than 13,000,000 gainful workers. Al-though the actual number of farmers and farm workers was half again as large in 1930 as in 1870, the proportion of the total working force engaged in agriculture had shrunk from 53 per cent to about 21 per cent. Productive workers in the manufacturing and mechanical industries (which include construction) comprised less than 21 per cent of the 1870 working population, and about 29 per cent of the 1930 labor force, but the increase in the actual number of workers in these industries was much less than in the service and distribution occupations.

Increasing Proportion of Workers in Distribution

Taken as a whole, the proportion of workers in production of goods had fallen to little more than half of the total by 1930, while distribution and service activities employed twice as large a proportion as in 1870. The changing distribution of the nation's labor force among various major kinds of activity is shown in Figure 1.

The percentages shown in the chart furnish only a rough indication of changing trends, not a precise measure of the exact proportion of workers engaged in each of the various productive, distributive, and service functions in any one year. Many workers classified by the Census in manufacturing are engaged in shipping, purchasing, and warehousing operations in the factory and could therefore properly be assigned to distribution. On the other hand it is clear that some of the transportation and communication employees are engaged in the distribution of services rather than goods. Moreover, clerical workers, shown as a separate group in the Census, and accounting for more than 8 per cent of the total in 1930, are all obviously engaged either in production, distribution, or service, but probably chiefly in distribution.

In spite of the fact that Census data do not permit precise comparisons, Figure 1 gives a rough measure of divergent employment trends during the sixty-year period from 1870 to 1930. Moreover, it seems highly probable that the changes during that period reflect
well-established trends which have continued since the time of the last Census. A smaller and smaller proportion of the nation's working force is needed to extract and transform materials into finished goods and a steadily growing proportion is engaged in trans-porting and distributing these goods and in providing personal, professional, and public service.

Clearly the addition of form utilities to physical materials is requiring a smaller share of our national human effort, while the addition of time and place utilities, or the transportation, storage, distribution, and selling of these goods, is absorbing a larger share. These divergent trends furnish no indication of relative efficiency in either production or distribution since they take no account of the vast increase in the amount of goods produced and distributed to a greatly increased population and the changing scope of these two economic functions. They merely indicate that in relative terms the work of producing goods absorbs less labor and that of distributing them requires more.

As a matter of fact, the actual number of workers engaged in both production and distribution has shown a great expansion since 1870. In distribution, however, there is no evidence of a slowing down in the rate of growth, while employment in some if not all branches of production appears to have passed its highest point. Agriculture had more than a million fewer workers in 1930 than in 1910; forestry and fishing and mining reached an employment peak in 1920; and there is considerable evidence that the next Census will show a decline in the number of workers in manufacturing and mechanical industries.

Employment Compared with Goods Produced and Distributed

Comparison of employment and occupational shifts over the sixty-year period from 1870 to 1930 with the growth in the physical volume of goods produced and distributed gives a rough idea of trends in the relative amounts of human effort devoted to the production of goods and to their distribution.

Allocating the number of persons classified as clerical workers in each Census year to each of the three branches of economic activity-production, distribution and service-gives a rough approximation of the total number of gainful workers engaged in each branch. Such estimates, together with figures on population, are shown in Table C of the Appendix. It must be emphasized that the actual figures for each year derived in this way do not pretend to be accurate because of basic difficulties in reclassifying Census data. Converted into index numbers, however, by expressing the 1870 value as 100 and the numbers of workers in subsequent Census years as percentages of the 1870 total, these figures furnish a rough measure of employment trends.

These index numbers of employment trends in production and distribution are compared with index numbers of population growth and with an index of the physical volume of goods produced and distributed in the United States in each decennial Census year since 1870. Population little more than trebled during this sixty-year period while the volume of goods produced and distributed in the United States was more than nine times as great in 1930 as it was in 1870. This nine-fold increase in the physical volume of goods available for consumption, in the face of a three-fold growth in the number of consumers, is striking evidence of the amazing advancement that has occurred in material well-being in the United States since 1870.

That the entire process of producing and distributing the goods needed by the population is being carried on today far more efficiently than in 1870-i.e., with much less expenditure of human energy per unit of goods produced and distributed-is also apparent. With an increase from 100 to 910 in the volume of goods, the number of gainful workers engaged in their production and distribution increased only from 100 to 351. Employment trends in production, however, show striking differences from those in distribution. For every 100 workers engaged in producing goods in 1870 there were 271 in 1930, and these workers were turning out more than nine times the total volume of goods produced in 1870. Employment in distribution, on the other hand, increased from 100 in 1870 to 877 in 1930, or nearly nine times-almost as large an increase as occurred in the volume of goods distributed.

These relationships are shown more clearly in Figure 3, which provides an approximate statistical measure of per capita changes in the production and distribution of commodities during the 1870–1930 period. The volume of goods produced and distributed per capita of the population increased from 100 to 286, or nearly three times. The average amount of goods handled per worker by workers in production and distribution combined was over two and a half times as great in 1930 as in 1870. Workers in distribution, however, handled only 4 per cent more goods per capita in 1930 than they did in 1870, while the average amount produced by production workers increased by three and a third times.

On their face these figures would seem to indicate that efficiency in production has increased to a striking extent during the past several decades while labor efficiency in the distribution process has shown very little improvement. Valid conclusions on the efficiency of the distribution process, however, cannot be based on these statistics alone. As will be shown in the following section the distributive function has experienced vast changes in its scope and nature during the past few decades. Changes in the organization of industry, such as mechanization and mass production, and the geographic concentration of manufacturing, which have resulted in higher per capita output, cannot be adapted to the processes of distribution except on a very limited scale. Still more important, these changes in industrial organization have thrust a much greater burden on the distributive system. In becoming more efficient production has become more restricted in scope, while the range of distributive operations has been greatly widened.

A closer view of some of the principal reasons for the varying trends in the per capita production and distribution of goods is in order. Changes in the character of our economic needs and in the system that has grown up to supply these needs are partly responsible. The distributive system today provides a vast range of new and different services, assumes increased costs and risks, distributes a multitude of new and complex products, and performs functions formerly performed in the household by the consumer or in the factory by the producer.

In part these expanded services are a natural and inevitable concomitant of technological progress and an advancing standard of living. To regard these new services as being inherently unproductive and wasteful reflects an attitude as uncritical and superficial as that of the Physiocrats nearly two centuries ago. They believed both manufacturing and trade to be sterile occupations, in contrast to agriculture, which alone was "truly productive" because it created commodities.

Under the non-specialized conditions prevailing in the United States a century or more ago, both the household and the local community were far more nearly self-sufficient than they are today. On the Colonial farm-and the vast majority of the population then lived on farms-the family was both the producing and consuming unit. The small surplus of farmstuffs and raw materials was either bartered for other goods or services within the community or disposed of through local dealers for shipment to distant markets. Most of the factories of that day were little handicraft shops supplying neighborhood needs and using local raw materials.

Under these simple economic conditions the middleman played an insignificant role. Because most products were not really distributed at all in the modern sense, costs of distribution were negligible. With the rapid development of the country, however, the growth of cheap transportation, the increase of commercial manufacturing, the trend of population to the cities, the growth of a banking and currency system, the advancement of the standard of living and expansion of human wants, distributive operations have
One of the most striking features of the complex economic society of today in contrast with the simpler life of a century ago is the increasing specialization of production. Instead of supplying most of his own needs with his own produce the modern farmer gains his livelihood for the most part through the sale for cash of one or a few commodities. These products may be sold and resold many times, transported hundreds or even thousands of miles, held in storage for weeks or months, and processed and packaged before they are finally delivered into the hands of many millions of consumers.

Mechanization of operations and mass production of specialized articles have become even more characteristic of modern industry than of modern agriculture. The village shoemaker using leather tanned from local hides and catering to the needs of a small community has disappeared. In his place are factories employing thou-sands of workers, each performing a single operation in the manufacture of a standardized product which can reach its ultimate buyer only through the intricate channels of the modern distributive system. Nor is the need for a complex system of distribution limited to the marketing of the finished pair of shoes. Extending back from the shoe factory to the distant cattle ranches, to the cotton and rubber plantations and other sources of raw material, is another series of specialized operations and industries. The products of each require costly distributive services in order to supply the ultimate consumer with a pair of shoes satisfactory to his feet, his eyes and his pocketbook, and delivered when and where he wants them.